Mostly rational

BS OPINION

However, a closer look at what is on offer and what Mr Vajpayee told the farmers will reveal that there is more to it than plain politics. Barring the Rs 600-crore sugar package that make little economic sense and is ill conceived, the initiatives seem to be steps in the right direction.

The stress on efficiency improvement and cost reduction to make farm products price-competitive in the international market is surely one of them.

So indeed is the emphasis on diversification of agriculture to cope with the glut of wheat and rice. Diversion of farm land from these high-volume, low-value crops to those commanding greater demand in the domestic and international markets is what is needed.

Viewed from this angle, the bid to make agricultural credit cheaper and refrain from hiking the minimum support prices (MSP) of paddy, while raising those of pulses, oilseeds and coarse grains, will seem more rational than populist moves.

While cheaper credit can help lower production costs, the mechanism of a minimum support price is the most convenient way of influencing the cropping pattern and facilitating diversification.

In fact, the misuse of the MSP instrument in the past is the main cause for the current skewed cropping pattern. By retaining the prices of paddy at last year's level and raising those of other kharif crops, the government has sent out a clear signal to growers to switch to alternative crops.

However, to get the desired response from farmers, alternatives to wheat and rice have to be equally lucrative. Since the government's direct intervention (through procurement at pre-determined prices) will be ill advised, the only way out is to pave the way for the private sector to step in.

But that is where the catch lies. No doubt, measures like the contract farming are ideal for bringing the corporate houses closer to the farmers and enabling them to produce-to-order for better and assured returns.

But the experience with contract farming, albeit limited, has been none too encouraging. This is because both private companies and farmers suspect each other of not honouring the mutual contract if the situation at the time of marketing of the crop so dictated.

Under the circumstances, the Punjab government, which recently launched an ambitious crop diversification project in collaboration with the private sector, had to virtually give its own guarantee to instil confidence in growers.

Therefore, what is needed is to lend legitimacy to the input-supply and output buy-back contracts between the private companies and farmers by making them legally enforceable on both the sides.

The government has so far only expressed its intention to frame suitable laws and rules for contract farming but without much action. Unless, this aspect is taken care of expeditiously, there may not be much forward movement on this front.